The 21st Century Bankerhttps://www.vedderbanking.com
Reliable and trusted news, commentary and industry updates for financial institutions.Wed, 31 Jan 2018 21:56:45 +0000en-UShourly1https://wordpress.org/?v=4.9.4The CFPB: No More “Pushing the Envelope”https://www.vedderbanking.com/2018/01/cfpb-no-pushing-envelope/
https://www.vedderbanking.com/2018/01/cfpb-no-pushing-envelope/#respondWed, 31 Jan 2018 21:56:45 +0000https://www.vedderbanking.com/?p=2073Continue Reading]]>On January 23, 2018, Mick Mulvaney, Acting Director of the Consumer Financial Protection Bureau (the “CFPB”), published an opinion editorial in TheWall Street Journal (the “Op-Ed”) describing his vision of the CFPB’s role in regulating the financial services industry. The Op-Ed struck a clear and contrasting tone from that of his predecessor, Richard Cordray, in declaring that the CFPB will no longer “push the envelope.” Specifically, Mr. Mulvaney provided his vision relating to three areas of current CFPB operations.

Regulation through enforcement is dead. Mr. Mulvaney has declared “regulation through enforcement” is dead, and that financial institutions can expect “more formal rule making and less regulation by enforcement.” Mr. Mulvaney philosophized, “[a]fter all, it seems that the people [the CFPB] regulates should have the right to know what the rules are before being charged with breaking them.”

As we noted in an earlier post, over the past seven years the CFPB has pursued enforcement actions against a wide range of consumer financial services providers. In bringing many of these enforcement actions, the CFPB has relied upon its discretionary Unfair, Deceptive, or Abusive Acts and Practices (“UDAAP”) powers. At the same time, the CFPB has left undefined the meaning of a UDAAP. Without official guidance from the CFPB as to the meaning of UDAAP, critics of the CFPB have alleged that financial institutions are left trying to interpret each enforcement action taken and its possible application to their own operations. With Mr. Mulvaney’s Op-Ed, it appears that the financial services industry may no longer have to play a continuous guessing game with the CFPB as to when and where enforcement actions will be taken.

Enforcement only where quantifiable and unavoidable harm to consumer. If the CFPB will no longer seek to regulate the financial services industry through enforcement, the next reasonable question is when will the CFPB seek to utilize its enforcement powers? Mr. Mulvaney clarified that, in bringing an enforcement action, the CFPB will focus on the “quantifiable and unavoidable harm to the consumer.” For instance, the Op-Ed noted that in 2016 almost a third of the complaints to the CFPB related to debt collection, and only 0.9% related to prepaid cards and 2% to payday lending. In a definitive tone, Mr. Mulvaney stated that “[d]ata like that should, and will, guide actions.” Consequently, where there is not a clear quantifiable and unavoidable harm to the consumer, the CFPB may not direct its resources to that area.

The CFPB’s rulemaking will be guided by measurable and quantifiable cost-benefit analyses. Pursuant to the Dodd-Frank and Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the CFPB is required to “consider the potential costs and benefits to consumers and covered persons” prior to finalizing any rulemaking. Mr. Mulvaney described that, to his understanding, the Dodd-Frank Act requires the CFPB rulemaking decisions to be driven by a “quantitative analysis,” and while qualitative analysis also plays a role, qualitative analysis should not be to the exclusion of measurable costs and benefits.

In ending his Op-Ed, Mr. Mulvaney declared in somewhat dramatic fashion that the CFPB has a new mission. “[The CFPB] will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further. The days of aggressively “pushing the envelope” are over.” To many in the financial services industry, this “new mission” is welcomed.

Dramatics aside, it is our belief that the financial services industry can expect a complete reimagining of the CFPB in 2018. Since Mr. Mulvaney’s appointment as Acting Director in November 2017, we have already seen various actions taken towards this end.

On January 31, 2018, the CFPB issued a Request for Information (“RFI”) on how the benefits and impacts of the CFPB’s use of administrative adjudications, and how its existing process can be improved. The purpose of the RFI was to ensure that its administrative adjudication process, as currently utilized, is fulfilling its proper and appropriate function of protecting consumers.

On January 23, 2018, the CFPB issued a RFI on how the CFPB has issued civil investigative demands (“CID”). The CFPB noted that comments received in response to this RFI will help the CFPB evaluate existing CID processes and procedures and to determine whether any changes are warranted.

On January 16, 2018, the CFPB published a call for evidence regarding the CFPB’s functions. The stated purpose of the call for evidence was to critically analyze the CFPB’s operations and to see that such future operations are properly aligned with the CFPB’s statutory purpose.

On January 16, 2018, the CFPB issued a statement on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Lending Rule”). In issuing the statement, the CFPB announced that it intends to engage in the rulemaking process so that the CFPB may reconsider the Payday Lending Rule.

On December 21, 2017, the CFPB issued a Statement on the Home Mortgage Disclosure Act Rule (the “HMDA Rule”). The purpose of the statement concerning the HMDA Rule was to announce that the CFPB (i) did not intend to assess penalties for errors in data collected in 2018 and (ii) planned on starting the rulemaking process to reconsider various aspects of the HMDA Rule.

]]>https://www.vedderbanking.com/2018/01/cfpb-no-pushing-envelope/feed/0A New Era: The CFPB to Reconsider How it Fulfills Its Purposehttps://www.vedderbanking.com/2018/01/new-era-cfpb-reconsider-fulfills-purpose/
https://www.vedderbanking.com/2018/01/new-era-cfpb-reconsider-fulfills-purpose/#respondFri, 19 Jan 2018 17:05:38 +0000https://www.vedderbanking.com/?p=2068Continue Reading]]>On January 17, 2018, the Consumer Financial Protection Bureau (the “CFPB”) announced that it will issue a call for “evidence” to ensure the CFPB is “fulfilling its proper and appropriate functions to best protect consumers.” The announcement states that in the coming weeks the CFPB will issue a Request for Information (“RFI”) seeking comment on the CFPB’s currently utilized enforcement, supervision, rulemaking, market monitoring and education activities. In so doing, the CFPB’s current utilization of its statutory authority to prosecute Unfair, Deceptive, or Abusive Acts and Practices (“UDAAP”) claims will likely take center stage.

Over the past seven years, the CFPB has aggressively pursued enforcement actions against a wide range of consumer financial services providers. In bringing enforcement actions, the CFPB has typically relied upon its UDAAP powers. However, although the CFPB has relied heavily upon its UDAAP authority, it has never provided guidance on how it defines a UDAAP. Without official guidance from the CFPB as to the meaning of a UDAAP, critics of the CFPB have alleged that they are left with trying to interpret each enforcement action taken and its possible application to their own operations.

Critics have gone on to allege that by exercising its discretionary UDAAP authority so aggressively, the CFPB has sought to avoid the rulemaking process which is subject to notice and comment. By engaging in regulation through enforcement, the CFPB has been critiqued as (i) limiting activities which have not otherwise been prohibited by law, (ii) subjecting financial services companies to novel and undocumented interpretations of existing laws, of which companies did not have fair notice, (iii) causing marketplace uncertainty and (iv) increasing compliance costs.

While it is too early to say for certain, one could expect the CFPB to receive ample comments, analysis and information concerning the CFPB’s use of its UDAAP authority.

]]>https://www.vedderbanking.com/2018/01/new-era-cfpb-reconsider-fulfills-purpose/feed/0Wells Fargo’s CAMELS Rating Leakedhttps://www.vedderbanking.com/2018/01/wells-fargos-camels-rating-leaked/
https://www.vedderbanking.com/2018/01/wells-fargos-camels-rating-leaked/#respondWed, 17 Jan 2018 18:49:24 +0000https://www.vedderbanking.com/?p=2065Continue Reading]]>The Wall Street Journal recently reported that the management component of the CAMELS rating for Wells Fargo Bank, NA had been downgraded to a “3” during 2017. A “3” rating of management means that the capabilities of management or the board of directors “may be insufficient for the type, size or condition of the institution.” At best, a “3” rating of management equates to a C minus on a report card.The “3” rating of management made business headlines, and fueled speculation that another enforcement action against Wells Fargo may be forthcoming. Less attention has been focused on who leaked the information and why. A bank’s CAMELS ratings are confidential, exempted from Freedom of Information Act disclosures. The boilerplate of every report of examination warns that the unauthorized disclosure of a report of examination is a criminal offense.

No bank wants to brag that its management has been rated a “3.” This would be especially true of the bank employees who would have knowledge of the rating. For only the highest ranking bank officers and the members of the board of directors ordinarily have knowledge of the CAMELS ratings. The higher echelon of a bank simply has no interest in telling the world that the federal bank regulators think they may lack the ability to properly manage the bank.

More likely, the leak of the rating started with a regulator. But why? We can only guess. One possibility is that the leak was meant to build pressure on the Office of the Comptroller of the Currency to take further enforcement action against Wells Fargo. Perhaps a disgruntled examiner felt the OCC was being too lenient on Wells, as opposed to a community bank where a “3” management rating most frequently leads to an enforcement action. By leaking the information, that examiner might have hoped the agency would be forced to take action, or at the very least have its double standard for large bank supervision exposed. But why would the examiner stop with leaking only the management rating? Perhaps OCC provided information to Congress about its oversight of Wells Fargo, noting how the past lapses at Wells resulted in a downgrading of management. This could account for the leak solely relating to the management component. Persons in Congress might have an interest in Wells being poorly perceived in the marketplace.

Regardless of who leaked the rating or why, we are unlikely to learn answers. Except when money is involved, illegal stock trading for example, the leaking of confidential report of examination material is seldom prosecuted. The absence of a paper trail and the corresponding questions of proof are probably the main reasons. Still, anyone who disregards the report of examination boilerplate about the criminality of disclosing report of examination material does so at his peril.

]]>https://www.vedderbanking.com/2018/01/wells-fargos-camels-rating-leaked/feed/0The Trump Administration to Seek Changes to the Community Reinvestment Acthttps://www.vedderbanking.com/2018/01/trump-administration-seek-changes-community-reinvestment-act/
https://www.vedderbanking.com/2018/01/trump-administration-seek-changes-community-reinvestment-act/#respondThu, 11 Jan 2018 22:24:03 +0000https://www.vedderbanking.com/?p=2058Continue Reading]]>The Community Reinvestment Act (CRA) was enacted in 1977 to prevent redlining and to encourage banks and savings associations (collectively, banks) to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods and individuals. Today, CRA and its implementing regulations require federal banking regulators to assess the record of each bank in fulfilling its obligation to the community and to consider that record in evaluating and approving applications for charters, bank mergers, acquisitions, and branch openings.

The Trump Administration has yet to unveil its proposed changes to the CRA. Nonetheless, the Comptroller of the Currency Joseph Otting has already floated the idea of expanding activities to be taken into account for purposes of determining the meaning of a community development loan (e.g., taking into account small business loans, infrastructure lending and other forms of lending that help revitalize struggling communities). According to Secretary of the Treasury Steven Mnuchin, the purpose of such changes are “to make sure [CRA compliance] is absolutely going to help communities and isn’t just a check the box to satisfy regulators.”

Click here to read an expanded synopsis of this topic (login credentials may be required).

]]>https://www.vedderbanking.com/2018/01/trump-administration-seek-changes-community-reinvestment-act/feed/0New Leadership: The CFPB Announces Its Plan to Reassess the CFPB’s 2015 HMDA Rulehttps://www.vedderbanking.com/2017/12/new-leadership-cfpb-announces-plan-reassess-cfpbs-2015-hmda-rule/
https://www.vedderbanking.com/2017/12/new-leadership-cfpb-announces-plan-reassess-cfpbs-2015-hmda-rule/#respondFri, 22 Dec 2017 15:52:46 +0000https://www.vedderbanking.com/?p=2054Continue Reading]]>On December 21, 2017, under the direction of Acting Director Mick Mulvaney, the Consumer Financial Protection Bureau (the “CFPB”) announced that it intends to reopen the rulemaking process to reconsider various aspects of the CFPB’s 2015 Home Mortgage Disclosure Act Rule (the “HMDA Rule”). In reopening the rulemaking process for the HMDA Rule, the CFPB intends to reconsider (i) the institutional and transactional coverage tests and (ii) certain other aspects of the HMDA Rule’s discretionary data points.

Specifically, the CFPB announced its plans to reexamine the following:

whether adjustments may be needed to the new requirements to report certain types of transactions; and

whether the additional information that the HMDA Rule requires be collected is beyond the scope of what is required under the Dodd-Frank Act.

In addition, the CFPB recognized the operational challenges needed to meet the requirements under the impending HMDA Rule. Accordingly, the CFPB stated that is does not intend to require financial institutions to (i) resubmit data unless data errors are material, or (ii) pay penalties with respect to data errors related to data collected in 2018.

Importantly, for data collected in 2017, financial institutions are still expected to submit their data in 2018 in accordance with current Regulation C and institutions will still be required to submit data using the CFPB’s new HMDA Platform.

]]>https://www.vedderbanking.com/2017/12/new-leadership-cfpb-announces-plan-reassess-cfpbs-2015-hmda-rule/feed/0Vedder Price Counsels Byline Bancorp, Inc. in Its Acquisition of First Evanston Bancorp, Inc.https://www.vedderbanking.com/2017/11/vedder-price-counsels-byline-bancorp-inc-acquisition-first-evanston-bancorp-inc/
https://www.vedderbanking.com/2017/11/vedder-price-counsels-byline-bancorp-inc-acquisition-first-evanston-bancorp-inc/#respondWed, 29 Nov 2017 16:26:02 +0000https://www.vedderbanking.com/?p=2051Continue Reading]]>Vedder Price is pleased to announce that its client Byline Bancorp, Inc. (Byline), parent company of Byline Bank, entered into a definitive agreement to acquire First Evanston Bancorp, Inc. (First Evanston), parent company of First Bank & Trust, in a cash and stock transaction valued at approximately $169 million.

At the closing of the transaction each share of First Evanston’s common stock will be converted into the right to receive 3.994 shares of Byline common stock and an amount in cash equal to $27 million divided by the number of outstanding shares of First Evanston common stock at the closing date. Based upon the closing price of Byline’s common stock of $19.73 on November 24, 2017, this represented a fully diluted transaction value of approximately $169 million. The transaction is expected to close during the first half of 2018. Closing of the transaction is subject to regulatory approvals, the approval of First Evanston’s and Byline’s shareholders, and the satisfaction of certain other closing conditions.

Over the last two years, Vedder Price has assisted in over 20 bank merger and acquisition transactions with an aggregate announced deal value exceeding $5.6 billion.

]]>https://www.vedderbanking.com/2017/11/vedder-price-counsels-byline-bancorp-inc-acquisition-first-evanston-bancorp-inc/feed/0First Annual Vedder Price FinTech Updatehttps://www.vedderbanking.com/2017/11/first-annual-vedder-price-fintech-update/
https://www.vedderbanking.com/2017/11/first-annual-vedder-price-fintech-update/#respondWed, 08 Nov 2017 22:37:40 +0000https://www.vedderbanking.com/?p=2048Continue Reading]]>Looking forward to our first annual FinTech Update tomorrow in Chicago. Click here to register!
]]>https://www.vedderbanking.com/2017/11/first-annual-vedder-price-fintech-update/feed/0OCC Grants First National Bank Charter Since the Financial Crisishttps://www.vedderbanking.com/2017/10/occ-grants-first-national-bank-charter-since-financial-crisis/
https://www.vedderbanking.com/2017/10/occ-grants-first-national-bank-charter-since-financial-crisis/#respondTue, 31 Oct 2017 21:01:48 +0000https://www.vedderbanking.com/?p=2042Continue Reading]]>On October 27, 2017, the Office of the Comptroller of the Currency (OCC) issued a full-service national bank charter since the financial crisis to Winter Park National Bank. Winter Park National Bank is the first de novo national bank and first de novo approved for federal deposit insurance in Florida since the financial crisis.

Provided below are some takeaways from Winter Park National Bank’s application and approval.

PPM 5000-43 provides that the OCC “only considers lowering the composite or component performance test rating of a bank if the evidence of discriminatory or other illegal credit practices directly relates to the institution’s CRA lending activities.”

Any OCC determination to lower an institution’s CRA composite or component rating will be guided by two principles: (1) there must be a “logical nexus” between the assigned ratings and evidence of discriminatory or other illegal credit practices in the bank’s CRA lending activities to ensure alignment between the ratings and the bank’s actual CRA performance; and (2) full consideration is given to the remedial actions taken by the bank.

Prior to the lowering of a bank’s CRA composite or component rating, OCC examiners must provide “strong evidence of quantitatively and qualitatively material instances of discriminatory or illegal credit practices directly related to CRA lending activities that have resulted in material harm to customers.”

The OCC will assign CRA ratings in light of the bank’s entire record of performance, “including the cumulative impact of supervisory or enforcement actions taken against a bank,” and CRA ratings generally will not be lowered solely based on the existence of evidence of discriminatory or other illegal credit practices prior to commencement of the CRA evaluation if the bank has remediated or taken appropriate corrective actions to address them.

In our view, this would indicate that the OCC will not take into account, for purposes of evaluating a bank’s CRA compliance, any alleged unfair or deceptive practices that are not directly related to a bank’s lending activities.

When will the Payday Lending Rule become effective?

While certain provisions of the Payday Lending Rule relating to the registration of information systems will become effective 60 days after the Payday Lending Rule is published in the Federal Register, the rest of the Payday Lending Rule will become effective 21 months after publication in the Federal Register. Consequently, the Payday Lending Rule will not become effective until sometime during the summer of 2019. Given that the term of the current CFPB Director expires in mid-2018, and will presumably be replaced by a director less hostile to the payday loan industry, some industry commentators speculate that the Payday Lending Rule, at least in its present form, may never become effective.

What type of loans are covered under the Payday Lending Rule?

The rule applies to all lenders, including banks, credit unions, FinTech companies and non-banks, that make the following two (2) types of covered loans:

The underwriting portion of the Payday Lending Rule, including the ability-to-repay requirements, apply to short-term loans that have terms of 45 days or less, including typical 14-day and 30-day payday loans, as well as short-term vehicle title loans that are usually made for 30-day terms and longer-term balloon payment loans.

Second, other parts of the Payday Lending Rule, including payment restrictions, apply to loans with terms of more than 45 days that have (1) a cost of credit that exceeds an APR over 36%; and (2) a form of “leveraged payment mechanism” that gives the lender a right to withdraw payments from the consumer’s account (e.g., checking or prepaid account).

What types of loans are exempt from the Payday Lending Rule?

The rule excludes from its coverage several types of consumer credit, including: (1) loans extended solely to finance the purchase of a car or other consumer goods in which the goods secure the loan; (2) home mortgages and other loans secured by real property or a dwelling if recorded or perfected; (3) credit cards; (4) student loans; (5) non-recourse pawn loans; (6) overdraft services and lines of credit; (7) wage advance programs; (8) no-cost advances; (9) alternative loans (similar to loans made under the Payday Alternative Loan program administered by the National Credit Union Administration); and (10) accommodation loans.

Importantly, as part of the “accommodation loans” exemption, the CFPB created a carve out for community banks and credit unions from the Payday Lending Rule; provided, however, that banks and credit unions (i) only extend 2,500 or fewer covered loans in the current calendar year; (ii) only extended 2,500 or fewer covered loans in the preceding calendar year; and (iii) during the most recent completed tax year in which the lender was in operation, the lender derived no more than ten percent (10%) of its receipts from covered loans.

What are the key requirements of the payday lending rule?

As stated by the CFPB, the purpose of the Payday Lending Rule is to “stop debt traps by putting in place strong ability-to-repay protections.” Generally, these protections apply to loans that require consumers to repay all or most of the debt at once.

Ability-to-Repay Loans. Under the Payday Lending Rule, it is an unfair and abusive practice for a lender to make short-term loans or longer-term balloon-payment loans without first making an ability-to-repay determination. In accordance with the ability-to-repay determination, a lender, before making either a covered short-term or longer-term balloon-payment loan, must make a reasonable determination that the consumer would be able to make the payments on the loan and be able to meet the consumer’s basic living expenses and other major financial obligation without needing to re-borrow over the next 30 days. Specifically, a lender is required to:

(a) Verify the consumer’s net monthly income using a reliable record of income payment, unless a reliable record is not reasonably available;

(b) Verify the consumer’s monthly debt obligations using a national consumer report and a consumer report from a “registered information system” as described below;

(c) Verify the consumer’s monthly housing costs using a national consumer report if possible, or otherwise rely on the consumer’s written statement of monthly housing expenses;

(d) Forecast a reasonable amount for basic living expenses, other than debt obligations and housing costs; and

(e) Determine the consumer’s ability to repay the loan based on the lender’s projections of the consumer’s residual income or debt-to-income ratio.

Additionally, lenders must comply with a 30-day cooling-off period before making a short-term loan, or longer-term balloon-payment loan, if the consumer has already taken out three (3) short-term loans or longer-term balloon-payment loans that were outstanding within 30 days of each other.

Conditionally Exempt Loans. The Payday Lending Rule conditionally exempts from the ability-to-repay requirements short-term loans under $500 where no security interest is taken in the consumer’s vehicle and where other structural requirements specified in the Payday Lending Rule are satisfied. Lenders making conditionally exempt loans still need to review the consumer’s borrowing history, both in the lender’s own records and in a consumer report from a registered information system contemplated under the Payday Lending Rule.

In addition to the above listed requirements, a lender is allowed to make up to three (3) covered short-term loans in short succession; provided, however, that the first loan has a principal amount no larger than $500, the second loan has a principal amount at least one-third (1/3) smaller than the principal amount on the first loan, and the third loan has a principal amount at least two-thirds (2/3) smaller than the principal amount on the first loan. However, this exemption will not apply where a lender’s extension of credit would result in the consumer having more than six (6) covered short-term loans during a consecutive 12 month period or being in debt for more than 90 days on covered short-term loans during a consecutive 12 month period.

Payment Restrictions. The Payday Lending Rule also identifies it as an unfair and abusive practice for a lender to make attempts to withdraw payment from consumers’ accounts (e.g., checking, savings and prepaid accounts) in connection with a short-term loan, a longer-term balloon-payment loan, or a high-cost longer-term loan after the lender’s second consecutive attempts to withdraw payments from the accounts fail due to a lack of sufficient funds. In such an instance, the lender will be required to obtain the consumer’s new and specific authorization to make any further attempts at withdrawals from the accounts.

In addition, the Payday Lending Rule requires lenders to provide a written notice to each customer, (i) a certain number of days before its first attempt to withdraw payment for a covered loan from a consumer’s account, (ii) before an attempt to withdraw such payment in a different amount than the regularly scheduled payment amount, (iii) on a date other than the regularly scheduled payment date, (iv) by a different payment channel than the prior payment, or (v) to re-initiate a returned prior transfer. This written notice must contain key information about the upcoming payment attempt and, if applicable, alert the consumer to unusual payment attempts. A lender is permitted to provide electronic notices as long as the consumer consents to electronic communications.

Reporting Requirements. The Payday Lending Rule permits companies to become designated as “registered information systems” by the CFPB. Lenders making short-term loans and longer-term balloon-payment loans will need to furnish loan information to such a registered information system, and will also be required to obtain and review a consumer report from a registered information system, prior to making either a covered ability-to-repay loan or a conditionally exempt loan.

Did the OCC’s rescission of the DAP Guidance open a door for banks?

Within hours after the CFPB’s announced Payday Lending Rule, the OCC rescinded its DAP Guidance. In theory, with the OCC’s rescission of the DAP Guidance, the OCC has signaled banks that the offering of DAPs may not trigger the regulatory scrutiny it has in the past. Below are answers to commonly asked questions concerning the OCC’s rescission of the DAP Guidance.

How Are DAPs Structured? A DAP could be structured a number of ways, but generally involve a line of credit offered by banks as a feature of an existing consumer deposit account. Repayment was automatically deducted from the consumer’s next qualifying deposit. Deposit advance products were available to consumers who received recurring electronic deposits if they had an account in good standing and, for some banks, several months of account tenure, such as six (6) months. When an advance was requested, funds were deposited into the consumer’s account. Advances were automatically repaid when the next qualifying electronic deposit, whether recurring or one-time, was made to the consumer’s account rather than on a fixed repayment date. If an outstanding advance was not fully repaid by an incoming electronic deposit within about 35 days, the consumer’s account was debited for the amount due and could result in a negative balance on the account.

What did the DAP Guidance Requirements. Generally, the now rescinded DAP Guidance provided for the following:

(a) Banks were to verify the DAP consumer’s monthly housing costs using a national consumer report if possible, or otherwise rely on the consumer’s written statement of monthly housing expenses;

(b) Bank were to forecast a reasonable amount for the DAP customer’s basic living expenses, other than debt obligations and housing costs;

(c) Banks were to determine the DAP consumer’s ability to repay the loan based on the lender’s projections of the consumer’s residual income or debt-to-income ratio;

(d) Banks offering DAPs were required to apply more scrutiny in underwriting DAP loans and were discouraged from extending credit where there had been repetitive borrowings;

(e) Banks were to ensure that the customer relationship was of sufficient duration to provide the bank with adequate information regarding the customer’s recurring deposits and expenses, and that the OCC considered a sufficient duration to be no less than six (6) months;

(f) Banks were to conduct a more stringent financial capacity assessment of a consumer’s ability to repay the DAP according to its terms without repeated re-borrowing, while meeting typical recurring and other necessary expenses, as well as outstanding debt obligations;

(g) Banks were to analyze a consumer’s account for recurring inflows and outflows at the end, at least, of each of the preceding six (6) months before determining the appropriateness of a DAP advance;

(h) In order to avoid re-borrowing, a cooling-off period of at least one (1) monthly statement cycle after the repayment of a DAP advance was to be completed before another advance could be extended; and

(i) Banks were not to increase DAP limits automatically and without a fully underwritten reassessment of a consumer’s ability to repay, and banks were to reevaluate a consumer’s eligibility and capacity for DAP at least every six months.

In announcing the rescission, Acting Comptroller of the Currency Keith Noreika stated that the release of the CFPB’s Payday Lending Rule “necessitates revisiting the OCC guidance” in order to prevent national banks and federal savings associations from being subject to “potentially inconsistent regulatory direction.” The Acting Comptroller also noted that, in his opinion, since the release of the Rescinded Guidance, “it has become difficult for banks to serve consumers’ need for short-term, small-dollar credit,” and many consumers have therefore had to turn to less regulated entities. The Acting Comptroller even went so far as to state that the OCC’s earlier guidance on deposit advances “may even hurt the very consumers it is intended to help.”

To view the full text of the CFPB’s factsheet summarizing the Payday Lending Rule, click here.